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Buying a Used Car with Credit Cards

By: Scott McBride - Updated: 14 Nov 2010 | comments*Discuss
Used Car Credit Cards Buy Pay Purchasing

It may seem a bizarre notion, but there are times when it can pay to buy a used car with a credit card. This is not a worthwhile option for most people, but in certain circumstances using credit cards when purchasing a car does make sense.

It will not generally be possible to use credit cards when buying a used car privately, as the average man in the street does not have the facilities required to accept credit card payments. All reputable dealers will be able to accept credit cards, however, although some may charge for the privilege.

Many credit card companies offer incentives to attract new customers and this is where used car buyers can cash in. New customers may be tempted by offers of six or even 12 months of interest free credit. Those able to pay off a car in this short space of time can save a considerable sum. For example, borrowing £5,000 from a high street bank or online lender at 7.9 per cent APR will cost £216.53 in interest payments if the loan is paid off in a year. That money can be saved if a credit card gives 12 months of interest free credit.

Check the APR

The problem with taking advantage of such a deal comes when the customer does not pay off the whole balance within the interest free period. With a credit card, the APR that kicks in tends to be much higher than that of a personal loan, so the customer can end up paying more in interest. For example, taking out a personal loan for £5,000 at 7.9 per cent APR over three years will cost £632.25 in interest payments.

Borrowing the same amount on a credit card over the same time can be more expensive, even with 12 months of interest free credit. If an APR of 18.9 per cent kicks in after a year, the amount of interest payable will be £651.50. The longer it takes to pay off the loan, the less sense it makes to pay using a credit card that offers a short-term incentive and then a high, long-term APR.

Shop around for the best introductory offers and interest rates to find out if a credit card is really a viable option, and take into account any charges a car dealer will make for using a credit card when doing the calculations.

Interest Free Incentives

Many credit cards offer interest free incentives for balance transfers, so it is possible to take advantage of one interest free option and then switch credit cards to get another six or 12 months of interest free payments. In theory, it is possible to do this until the balance is paid off and so avoid paying any interest at all, although it is a high-risk strategy. After all, credit card companies are not obliged to give cards to anyone and so may turn a potential customer down, or offer a credit card limit that does not cover the required amount. Also, most credit card companies will charge an initial fee – a percentage of the balance – when a balance transfer is made.

There are other potential bonuses when buying with a credit card, however. Some cards offer cashback on purchases or rewards that can be spent in shops or at travel agents. Also, there can be added legal protection when buying with a credit card, so if a dealer goes bust or if the used car is not fit for purpose, the buyer can go straight to the credit card provider.

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